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5/31/08

It looks like Anglo American (London AAL, New York AAUK) is about to pull out of Peru.

When AAUK successfully bid U$403m last April 2007 for the large Michiquillay copper project in northern Peru, the deal looked pretty sweet. The deposit is big enough to make sense and Peru's government, eager to attract FDI, was effusive about the deal, the jobs, the growth it would bring to the very poor Cajamarca region etc etc. However, the deal has always had the shadow of "those pesky locals" hanging over it. The approx 23,000 residents of the 'Enacañada' district that includes Michiquillay don't want the mine......to reopen. Their argument is a simple one. The five (some say six) valleys that are connected to the Michiquillay site service the land of around 60,000 families, and if the mine gets mining they would lose vital water supply to their crops and farms and gain a whole stack of pollution problems.

This case is not one of a head-in-the-clouds community in the middle of nowhere that doesn't know what a colour TV looks like, has no clue about mining and has been brainwashed by the extreme environmentalist treehuggers, either. Cajamarca region is real, traditional mining country, and everyone there knows the industry either first or second hand. Also, Michiquillay is only about 30 miles from the region capital city (also called Cajamarca); this is by no means a isolated yokel know-nothing community.

The locals also know all the arguments both pro and contra mining development. And although leery about letting mining back into their community, they're not closed-minded about it, either. Since 2006 the community has said to the gov't that they will accept mining, but on a number of conditions including guaranteed quality and quantity of water, the capex is spent at a local level, there is profit sharing among locals etc etc. Basically, they know the ins and outs of mining, and this time they're not going to take some crummy deal at the expense of their environment and lifestyle. They have had innumerable meetings with all authorities and representatives from AAUK. And after all that, the majority of the local population has just last week made it clear that they don't want the project to go ahead as stands.

The big problem for the national government that the locals really can stop the mine from happening. In Peru, there is something known as the "social permit", which to cut a long story short is the locals allowing a mine to develop; without this permission, by law the mine cannot happen. Garcia&Co have known about this for quite a while, and they even tried to force through an executive order last year that would have allowed 20 different mines (including Michiquillay) to be developed without needing a social permit, arguing that these projects were "in the national interest". His initiative was rejected at the national level in October last year, thus the social permit is still needed.

In the case of Michiquillay, since then the tactics used have become a bit dirty. Outsiders are shipped in to swing votes against the locals' views. The head of the association opposing the mine, Mercedes Saucedo Rios....

Mercedes "El Gato" (the cat) Saucedo....meow

.....has reported telephone death threats to both him and his family. Most locals suspect the president of the local community has been paid off by someone or other (most likely the regional gov't), as he has been a stubborn advocate of the mining project despite the majority wishes of his community.

Last Saturday, push came to shove. Despite some shadowy tricks used by the pro-mining factions such as 20 busloads of outsiders trying to disrupt proceedings and the in-the-pocket local community president trying to call off the final vote when he realized his side would lose, the community voted against granting the all-important social permit. The Cajamarca regional governor was livid, and squealed from his office 47km away that a bunch of campesinos couldn't stop progress like this. He's wrong. They can. And they did.

Also, AAUK is miffed with Garcia&Co and has, according to Otto's sources, given Peru until June 4th (like next Wednesday, dude) to get the green light for Michiquillay else it will pull out from the project and also its other Peruvian copper greenfield at Quellaveco in the South of the country (which is also coming under scrutiny from locals on the question of using up the valuable local water resource). If they pull out, AAUK will have lost out a bit for sure, but it's by no means the end of the world for them. The company's potential investment in Peru pales into insignificance against the size of the company's present operations, and just the projected U$6.6Bn or so for its new iron ore mine in Brazil easily outstrips planned Peruvian investment.

On the other hand, Alan Garcia will lose bigtime. He is going to look seriously stupid amongst the international mining community if he can't get Michiquillay off the ground as promised. He constantly touts the good-looking macro figures in Peru, but his detractors point out that the benefits are not being felt by those at the bottom of the pile, this despite the controversial improvement in poverty numbers announced last week. In his headlong rush into the arms of neoliberalism, Garcia has forgotten to invite the poor of his country along. And now that poor sector has a casting vote on the direction of the development, he is about to lose a significant amount of face.

At Michiquillay, some kind of worm has turned. The locals have definitively voted against the social permit and it will stay that way unless something underhand happens. And unless something changes, AAUK is going to abandon Peru. And if that happens, the carefully modelled image of Peru being FDI friendly, miner friendly, progressive, etc will take a serious hit. No matter that it's just one community amongst thousands and there are many other places in Peru that welcome mining development of this kind, the Michiquillay project that Garcia proclaimed as "indispensible for the devevelopment of Peru" at the signing ceremony last year is going to leave him with a nasty case of egg-on-face. The sensation of increased political risk for miners that will ensue from Garcia's fiasco cannot be good for the country's development.

I received a mail from a regular reader, and now that she's given me permission I'd like to share it with you.

The lady in question is an Argentine national, and she wrote about this post where I professed my support (with caveats) for the agro boyz side of the fight between them and the Klishtina gov't. Here's what "EG" wrote (with very slight alterations to protect the innocent):

I respect your position on the Agro side, and I don't understand enough to tell whether their demands are reasonable or not, but these guys are speaking in a tone we Argentinians know very well.

1) They want Cristina out. The head of Lousteau and Alberto F. is not enough for them. Trust me.

2) They wouldn't have dared to do all this if the president were Néstor.

3) A negotiated way out of this crisis would be, for sure, the best thing that could happen, BUT no government has to ask for permission, beyond its constitutional attributions, to set its policy in any field.

4) Did you hear Buzzi's words on the May 25 act? Would you negotiate with him afterwards? On which terms?

5) These guys ARE a rancid oligarchy, which is utilizing the small farmers for its convenience.

6) This shit (the oligarchy in question) is the same that applauded Videla and Menem... ah well, I'm sure you know that.

7) So watch out. Maybe their demands are just, but their modus operandi exceeds the simple goal of getting what they want.

8) I'm afraid you need to be Argentinian to fully understand the 200 year old morbid mindset of these people.

This is what your Otto calls "very good comment", and as I read thru the note a second time I found myself agreeing with most of the message..perhaps 80%*. This is the point i didn't expand upon in my post; it's not a case of black against white in this conflict, but more a case of one shade of grey against another shade of slightly lighter grey.

There are two sides to both the gov't and the agro stances. One is economic and the other is political. The economic one is easier, the political one is a real minefield and EG is absolutely correct in saying you need to be Argentinian to fully understand it. I live under no pretences there, cos understanding how Peronism works is the stuff of Master's degrees in politics for those not born in Argentina.

Taking it piece by piece, the acid test here is when Klishtina backs down and offers a "reasonable" economic settlement to the agro side (whatever reasonable might mean). The concessions offered Thursday evening were very close to non-existent. You need to read up a bit more to see the details of gov't plan, but in really basic terms the difference would kick in when soya crossed U$600/tonne, and right now it's at U$480/t...that's a looooong way to go before anything changes. So if and when the gov't offers a "reasonable" half way house, then the agro boys will either have to accept it or truly show their hand. At that point, if the agro boyz look for trouble I personally (and I'm guessing a lot of other people too) would withdraw support for their cause.

To wrap this up, two semi-random thoughts. Firstly, my problem with the Klishtina government is basically the way they are screwing the roost on the economics front. There are trying to force the country down a freakonomics road that can only finish badly. Secondly, this is just another example of "no one is innocent". Trying to put LatAm things into Anglo Saxon perception boxes is a sure-fire way of blocking true understanding of what Latin America is and how it works. I know do not have the definitive answers because I'm gringo by birth and culture as well. Seeing the mistakes made is not the same as being able to correct them.

*esp point 4: Yes he's a shit. Note to readers: Googling Buzzi's name is a good way to learn more about the complexities.

Yep, here we go with another edition of your fave rave weekend kickback quiz. Today's quiz will feature ten (YES TEN!) questions and all you have to do is get them right....or else.

The prize is a scrummy as ever, folkz. Top slot this week gets to be the babysitter for Alan Garcia's illegitimate child! You get to watch TeeVee in the living room and raid the well-stocked fridge while the little mite sleeps all evening....bless!

So on with the show. Goodo lucko!

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1. Who is Spain's favourite Latino President?

2. Why are there road blocks in Argentina tonight (Friday/Saturday)?

3. Who bought the U$1.3Bn bond that Argentina emitted on the 21st May?

4. Paraguay's president-elect, Fernando Lugo, is currently setting a foot-fashion trend in his country. What is it?

5. In Bolivia, what has just been found with an attributed age of 5 to 15 million years?

6. Who is heading up the USA delegation to the Organization of American States (OAS) meeting this weekend?

7. A man was arrested in Venezuela on Thursday. He was near the Colombian border an carrying French and Canadian passports and a Venezuelan identity card. What is his nationality?

8. In which country were several unmarked graves from the 1980's (containing 123 bodies of men, women and children allegedly killed by the country's armed forces) uncovered this week?

9. Which country's president the only country with terrorist activity in South America, has this week called for a "great alliance against terrorism" in the region?

10. Which regional country has a population of 44 million and a 3.3 million citizens living abroad?

5/30/08

I've had precisely seven mails (five of those from German readers, which surprised me) asking for more details about this blog earlier in the week that mentioned the ban on mining placed on junior miners in the Carabaya/Macusani area of Peru. This ban apparently affects companies such as Solex Resources (SOX.v), Vena Resources (VEM.to), Frontier Pacific (FRP.v), Bear Creek Mining (BCM.v), Strathmore (STM.v) and others.

The basic question from all the mails has been, "can you back up the claims?". Well here's an article in the Puno regional newspaper "Los Andes" from a couple of days ago that gives some more background. An exhibition was given to locals at the weekend, with the region's national congress representative present, After the show was over, the local leaders decided to tell the congressman;

"....to transmit to President Alan Garcia that the the decisions have been made and that the exploration and exploitation of uranium will be paralysed in June 2008, as soon as the agreements signed with the directors of the (junior mining) companies have expired."

I hope that's clear enough. Basically, the whole Macusani/Carabaya region is radioactive for investors in more ways than one. If you have any more doubts, I strongly suggest you get into contact with the IR departments of the companies concerned to see what they say about the subject. I always say that you can judge a company on the sincerity of its disclosure policy, so take time and go ask them about it yourself.

On this news alone, companies like SOX with the vast majority of assets there look like they're in deep trouble. Others like Vena might also take a hit, but Vena is a very likeable junior for other reasons (esp the Azulcocha mine that's champing at the bit and on course to start production in a couple of months' time) and even its uranium explorations are likely to continue in different areas. I may blog again on VEM, but in the meantime here's its website so go have a look at the company for yourself.

So yesterday, the Klishtina gov't announced their un-negotiated deal they would dictate to the agro boyz (check for details in Reuters, Bloomberg etc). The agro boyz have had a good look at it and have decided on all-out war. As from today, there will be no cattle delivered to the Buenos Aires market and grain export deliveries are stopped. Next week there will be sit in protests all over the country, and possible roadblocks.

This is now serious, and will start to affect the country's macro numbers deeply. Already, China is reportedly turning its back on Argentina soya delivery contracts as they cannot trust them to declare force majeur in the future. The BsAs futures market is basically closed for business. The fight is now being polarized between those who will support agro in a longer-term fight that will affect the whole country to the detriment of a gov't that was democratically elected less than a year ago, and those who hate the agro boyz for representing an oligarchy and will use all class war rhetoric possible.

Let's make this as clear as possible: I am pro Agro in this fight. They are by no means innocent, but the Klishtina style of gov't will sink Argentina, and it's only a question of "sooner or later". She HAS to change course, and it's better that it happens now. Her idea of social equity is to make rich people poorer, not poor people richer. THERE IS NOTHING WRONG WITH BECOMING RICH. Money does not smell (as they say down here), it's what people do with the stuff that's the problem.

But that's for another day's philosophizing. Argentina has to go through a catharsis of confrontation here, and it's not going to be pretty. I expect a sacrificial lamb to be found in Alberto Fernandez, the Klishtina cabinet chief and the main voice in yesterday's announcement. When the caca hits the ventilador, the Teflon Kirchners will throw him to the seething masses when making their concessions.

After I mentioned the obvious buy set up of gold shown in the gold/oil ratio in the 'trading post' yesterday, Top TA analyst Gary at biiwii.com has looked at the same relationship.

Here's his post, so go have a looksee for yourself. As usual expect his chart to be better and his technical analysis talk to be more technical (cos this is the dude at work). But interestingly his conclusion is the same as mine:

5/29/08

This afternoon, Klishtina has been in a big pow-wow with some of the trusted team, and word is that she is about to dictate (I use the word deliberately) a new deal to the agro boyz without any prior consultation with the sector.

Update: Well, the gov't has given some ground. The finer points of the deal have yet to be hammered out, but he main point is to allow the producers a larger cut of the profits (52.7% of gross retained by the state instead of 95%) when soya (and all other grains pro rata, it seems) is over U$600/MT on world markets.

It took 79 days of protests and the biggest protest gathering seen in Argentina for 25 years for Klishtina to budge this inch. The moderates in the agro sector are likely to want to accept the deal, but already the more militant wing has rejected it with de-facto leader of the hardliners Alfredo De Angeli saying "isn't worth anything". We shall see what kind of official response the agro boyz come up with. Klishtina will be hoping to divide and conquer with this small gesture, welcome as it is. One of the more interesting things that cabinet chief Alberto Fernandez said at the press conference was "We must preserve the futures market", a strong hint onjust how much the Argentine gov't is feeling the fiscal pressure right now.

If you're feeling wonky, here's a link to a Clarin article that breaks down exactly how things have changed after today's announcement. The words are Spanish, but the numbers are the numbers. I can't be bothered to translate it here tonight...sorry...got other things to finish and then a bed to climb into. You can always run it thru Google translate.

Gold got whacked this morning, so my chipper "Hey how good is my timing?" talk from yesterday is made to look stupid. A good thing, too. Too much ego is bad for your back pocket in this game. I'm very happy to hold through however, and will add gold if it goes under U$850/oz.

Sold the short term MDR.v block, and made 28% on it. That'll do nicely, and a good time to put a bit of cash in the a/c, too. I really like Mansfield going fwd, but I'm not afraid to trade it and take a profit, either.

Copper dropping to U$3.65/lb is scaring a lot of ST hot money away and causing the predictable round of gloom'n'doom headlines. As I've pointed out many a time, my trading channel range of copper between $3.50 and $4/lb is intact and I'm very happy here. I'm now looking to pick up some cheap PCU. Currently $106, so not just yet. They offer me sub $100 on a panicky spike down and I'm a buyer.

Oil has just spiked to $133 again. That's one very strong commod right now, no? Certainly gives lie to all the dollar rebound talk. The gold/oil ratio is looking good for the yellow metal.

UPDATE: On an e-mail request about the reference to "gold/oil ratio", here's what I'm talking about in chart form.

(click to enlarge)

This chart shows the last four years or so of this ratio, and the current bottom being put in by gold compared to black oil. It really doesn't get any simpler than this, y'know. Got gold?

The same as previous month-ends, here comes my pathetic attempt at begging. Over there...up in the right hand corner of the page....

....there's a chance to donate via that paypal button.

If the blog has done you a service it's a chance to throw over a small tip. No coin too small, and as always it'd be very appreciated. But I'm quick to point out the voluntary nature of this, ok?Donate or not, you're all so very welcome to share the blog. If you enjoy reading it and maybe have learned something along the way and generally have nice thoughts about Otto and his tiny corner of cyberspace, that's good enough for me.

This is also a good time to remind my brother to send me the 5spotter he owes me, cos when Man Utd beat Chelsea in the Champion's League final he lost our bet. Cough up, bro!

....and at first read it's middling at best, and will probably disappoint the market.

Here's the link to the press release, which highlights a new Measured and Indicated resource of 6.47Bn lbs copper, with 1.27Bn lbs copper in the inferred column...that' a total of 7.74Bn lbs copper. BUT (big but) this has been measured at 0.3% copper cutoff which is rather low. The norm round here is a 0.4% cutoff. At the 0.4% number, the whole thing adds up to 5.5Bn lbs copper.

Add this to the lower projected copper recovery rates from the rock involved (in the 81 to 88% range, rather than in the 90%+ range), and the whole thing does not live up to the expectations previously mentioned by the company. However, it should be pointed out that a lot of the resource is now in the M+I column and not simply inferred, and that is a positive in valuation terms. Also, the company reports there is the potential on site to raise resource levels by 15% to 20% going forward, giving us a 9Bn lb copper ballpark target.

Just to run the numbers again, CNT has 81.5m shares fully diluted. at today's price of $1.90 approx, this would value each of the 7.74Bnlbs of copper in situ at 2c, but I prefer to go with the 0.4% cutoff numbers, so the pounds-in-the-ground valuation comes out at 2.8c/lb copper.

Basically it's still good value at these prices, but it isn't the compelling bargain I was looking for. According to the chart found on my previous post here, I'm dropping my target price to $2.80.

UPDATE, 20 MINUTES AFTER OPENING: Now trading at $1.63/$1.66, which is a bigass drop and an over-exaggeration, all things considered. The drop in copper to $3.65/lb isn't helping mkt sentiment, either. No point in lightening at these prices. Holding through. This is the whole point about "buying well", dudes. If you bought in at $1.80 to $1.90 last week you'd feel a bit miffed right now, but the $1.54 buy price we spotted 6 weeks ago gives the patient investor a big cushion to ride out the high beta moments.

Dontcha just love it when you catch a politician red-handed in a sordid lie? Yeah, me too, so here's Miró Ruiz, a Peru congressman for the Nationalist Party and really nasty, snotty piece of work that you'll want to punch in the face soon.

And here' a cute photo of an 18 month old Schnauzer named Matias.

What's the connection? Well, about a week ago, Ruiz saw the fluffy ball of fun Matias running amok amongst his hens and ducks, and apparently bit one of the ducks on the leg. So Ruiz took out his unlicenced carbine and shot the dog three times. Yep, the dog died.

Only then did the fun start: Ruiz flatly denied in a public interview that he had shot the dog, and also claimed he does not use or own a gun. It wasn't until the dog's owner (and neighbour to Ruiz) kicked up such a fuss that an ethics commission was set up inside congress to investigate the matter that Ruiz cracked up, broke down and fessed to the crime, blaming it on "human error". Your animal loving Otto assumes he was talking about the lack of contraceptives used by his parents a few decades ago.

It's also emerged from an ex-employee of this shit-turned legislator that the dude gets his rocks off by shooting wild animals such as the Vizcacha (a wild rabbit-like animal and a protected species), so all that malarkey about never carrying firearms is a real crock. And to add a twist of irony to the whole cocktail, Miró Ruiz is one of the members of congress that is promoting a new law that calls for a prison sentence of 20 years for poachers of wild species, including the vizcacha. To sum up, this fine example of Latino politico;

shoots dogs and other animals for fun

shoots them with unlicensed firearms

lies about the episode

lies about being a gun owner

blows away protected species in his spare time for kicks

helps decide the future of the country

This is the quality of human being that is voted into office in Peru. Kinda explains things, no?

5/28/08

A few days ago a reader wrote in, noted that I liked Aurelian Resources (ARU.to), I didn't seem to have an opinion on Corriente Resources Inc. (CTQ.to), (ETQ) and wondered why. It's a fair question, and it was a bit rude of me not to answer (I do appreciate it when people take time out to write a mail). My only excuse is that it slipped my mind (not a great one, but honest). So for what it's worth, here's my opinion on Corriente.

I don't really have anything against CTQ per se, but it's more a question of comparatives than anything else. Y'see, the main reason I like Aurelian and have happily stuck through all the political risk of the last year or so is that the story, the project, the prospect (or whatever way you want to say it) is just too darned compelling to ignore. Not only is it one of the biggest untapped gold resources in the world at 13.7Moz Au and 14.1Moz AuEq, it's also open to a lot of resource/reserve upgrading. With the amount of work done on site and the prospects of expansion, the Fruta del Norte (FDN) site could easily top 20M oz. But perhaps even more important is the high grade of the orebody, which makes the project extremely cost effective once mining finally gets underway (and I'm quite sure it will, by the way). With ARU, there really isn't anything else out there that compares. It is, as Jose Mourinho would say, "The Special One".

CTQ, on the other hand, is one of many. There are other large/very large copper projects out there in other parts of the world that offer just as much bang-per-buck at lower political risk. Yes, I'm quite aware that Ecuador is a riskier place to have a junior right now, and especially for an open air mine project when Constitutional Assembly head Alberto Acosta (properly considered the second most powerful person in Ecuador today) continues to knee-jerk oppose the idea of the open pit system, as shown in this article dated May 13th which finishes (translated);

"....these are indispensible days to collectively make decisions about the country we love, including to decide if Ecuador should be declared a country free of large scale open pit mining."

In all this time, I've watched Acosta go from a radical green "no mining at all" stance, through a "no large scale mining" stance, through a "local people must agree to large mines via a referendum" stance to today's "mining yes, but socially responsible" stance. However, through all this backtracking he has continued to oppose open pit mining, and quite frankly there's enough risk in my life as it is without exposing myself to any more.

So when it comes to CTQ I'm neutral. Nothing wrong with the project; the numbers add up and the planning is sound enough and it's trading at a substantial discount if it gets a green light in reasonable legal circumstances. But the same thing can be said for Candente (DNT.to, CDOUF.pk), or Inca Pacific (IPR.v, IPRFF.pk) or Los Andes Copper (LA.v), or Chariot Resources (CHD.to), and those projects are in the safer (or much safer) zones of Chile and Peru. So I simply prefer to go with copper plays in less risky environments. One buy reco in Ecuador is enough, thank you.

In this post, I mentioned that the drop in poverty in Peru announced this week was pretty darn suspect and wondered out loud what the eminent professor of economics and expert on the subject, Jurgen Schuldt of Lima's Universidad Pacifico, would make of it all. If you remember, the government of Alan Garcia proclaimed to the world that poverty had dropped in 2007 from 44.5% of the population to 39.3%.

Y'see, this humble Otto imagined that Schuldt would have to use his considerable intellect and experience in Peruvian macroeconomic affairs to carefully dissect the government report. I certainly wasn't expecting him to blow the report out of the water by reporting the most obvious bullshit lie possible. It really is quite incredible the gov't claim support from the World Bank and a whole bunch of international entities when they use the most blatant manipulation of statistics possible. They are lying. Period. And thanks to Schuldt, they've been caught in the lie.

What's the scandal? Easy. When calculating its poverty levels, the gov't used the inflation figure for the Lima Metropolitan area for the whole country. Why is this total madness?

1) The inflation figure for Lima+Metro 2007 was 3.9%, the lowest in the whole country.

2) Lima+Metro accounts for around 33% of the total population in Peru

3) theNATIONAL inflation figure was 4.9%

4) Many cities in Peru registered inflation levels of between 8% and 10% in 2007. These numbers were conveniently ignored by the government.

Read the Schuldt article for more numerical details, but to put this into context very roughly and quickly, here's how the gov't has manipulated the figures. Let's imagine that

the official poverty line is set at "1000"

last year, family X was calculated with a figure of 950 (ie officially poor)

this year, family X received a total income rise of 10% (adding 95 to our total and giving us a gross number of 1045)

So if we take a 3.9% inflation rate into account, the final net number is 1004. Hooray!!! Not poor!!!

But if we take an 8% inflation rate into account, the final number is 961.4. Arrrgh!! Still poor!!!

(By the way, the whole concept is the called the "deflator", and although it's far more complex than my very rough and ready example it's standard procedure in economics.)

Schuldt has made an initial calculation, and states that the use of this blatantly false inflation figure has altered the results by 1.5%. In real terms, this means that the gov't is saying that over 400,000 people are not officially under the poverty line, when in fact they most obviously are. Schuldt also rightly points out that if this obvious lie has been used by Garcia and company, how many other lies, false stats and number-massage techniques will come to light once the INEI (Peru stats office) publishes the full report with the techniques and programs used to calculate the final number.

It beggars belief that a country that wants to be taken seriously by the world community resorts to such stupidity. Is Peru taking its statistical cue from Argentina these days?

...is what I've been waiting for to get back in (although I must admit I nibbled a bit yesterday at $906). The whole ballgame is the dollar (USD), and the move this morning is a) unimpressive in its size b) a short term bear rally, be clear.

Until there are real fundamental reason to buy the USD (y'know, the boring old things like lowering trade deficits, economic growth, lowering of national debt) there's no reason to be bullish the greenback. This time isn't different, and the recent upmoves the made by the dollar have been short and weak. This one won't be any different.

So we buy gold at under $900 without thinking twice about it. If they're mad enough to give me $850 later this week, I'll take that too. The chances of gold not going back to $920 in the short term are zero.

Note; this trade has nothing to do with my long term gold holdings, which are untouchable.

UPDATE 10:15am: Picked up a slug of gold from BullionVault at $892, like a minute beofre it roared back. Happy about that. Looks like they're not mad enough to give me $850 though :-)

5/27/08

I almost didn't post this time cos I'm getting fed up with this story. But here we are, so to sum it up quickly:

1) The gov't refused to negotiate with the agro boyz yesterday, then blamed the agro boyz.

2) The agro boyz held a meeting this morning, and then waited for "a gesture" from the gov't side.

3) The gov't gesture turned out to be of the one-fingered variety, accusing the agro boyz of trying to organize a coup d'etat.

4) On the back of that, agro has just annouced it is going back on strike. The strike will consist of no cattle deliveries to the Buenos Aires market until next Monday (shouldn't hurt; any retailer with a brain has stocked up), and an indefinite ban on deliveries of grains for export (will hurt...a lot).

It really is difficult to believe how this gov't could be so stupid and so obstinate. This letter to the Wall St Journal today puts it well. So that's enough of this whole Argy soyawars subject, and if you've taken my advice by now you would have loaded up on Argy bonds shorts or BMA short or GGAL short by now, so tomorrow you'll be doing what Otto will be doing, i.e. taking money from stupid people. That's kapitalism, baby...........

What they forgot to tell you was they are a bunch of racist scum trash bastards.

Don't waste any more time here. Go straight to this link from the excellently excellent "Abiding in Bolivia" blog (it's in English, don't worry) to find out how the separatists jumped on a group of indigenous people who were were beaten, stripped and forced to kiss the steps of the legislative house that previously proclaimed them "non-people" while watching the white trash burn their clothes. While you're at it, scroll down and find out about the Nazi youth hit squad in operation in Santa Cruz, and the extremely dubious background of the dude Simon Romero decided to interview for the New York Times. All pretty typical for the racist white scum of East Bolivia, it has to be said.

If you don't believe the blogpost, check this out from the only English-speaking newswire that picked the story up. Thank you Italy's Inter Press. As "abiding" points out, isn't it amazing how the major news media ignore the stories that don't fit into their version of reality.........

I'm sitting here with a copy of Ecuador's new draft mining law open in PDF, and if 110 pages of legalese in Spanish is your idea of fun just send me a mail and I'll shoot you over a copy*, or if you like find it on this link. Suffice to say that this post would have been published earlier today, but I fell asleep twice reading the PDF.

The whole thing can best be described as 'benign'; after the upheavals of the last couple of months it's very, but VERY good to see an official document about mining from Ecuador's government that is clear about how the country wishes to tighten up the law, but is basically friendly to the industry.

This really isn't the place to go into fine toothcomb details (either read the document yourself or hire me to translate it in full...I doubt I'd accept though) but after reading through it once quickly and another time in more detail I've picked out the following as some of the more interesting points (though when it comes to draft laws, "interesting" is definitely a relative term).

On page 3: Article 4 makes it clear that environmentally responsible mining is in the public interest (of Ecuador, obviously). This might be a basic point, but it's well worth reflecting on after the calls for a wholesale sector shutdown from the treehuggers. In short, Correa's government is officially saying "we want mining in our country". I like that.

On page 12: The definitions of "prospecting", "exploration" and "extraction" phases of mining are duly defined in article 18. This may well allow companies such as Aurelian (ARU.to), Corriente (CTQ.to) (ETQ) etc to go back to work, as they were stopped from working under article 8 of the constitutional assembly mandate (English version of the mandate is right here). This is because in the mandate the word used was "explotación", and clearly does not apply to ARU, CTQ etc, because the new law defines them as "exploración", and not explotación". Is this semantic nitpicking on my part? Definitely not! This is a clear definition, probably legally applicable right now (as it remains unchanged from the current suspended law), and would allow ARU, CTQ and others to get on with their drill programs.

On pages 17 and 18: This outlines the tribute and royalty payments schedule, and also how the money collected by the state will be spent. The new law envisages that a lot of the duties will stay in the area local to the mine (a very good idea). It also outlines the royalty schedule, which is between 1% and 5% value of gross metal value calculated on quantities mined, with the largest mines paying the most (eg, ARU, CTQ, DMM IAG would all pay 5% of gross). In my opinion this is an acceptable deal for miners. One thing to note; the new law does not make any mention of the feared windfall taxes. However, that tax was proposed by the state revenues ministry and not the mining ministry, therefore although it's good to see no mention of windfall taxes for miners, it's not a done deal yet. All the same, there's every reason to be optimistic on this score as the mining windfall seems to be in the process of being quietly dropped.

On page 24: The law sets out that a single concession cannot be more than 5,000 hectares in total area, and also sets the time limit for concessions to 20 years (it was previously 30 years). On the subject of concessions, there is no mention at all of limiting any miner to just three concessions, as stipulated in the Assembly mandate. If this isn't added to the law later it will be a big boost for all large miners.

On page 26: There is an article that makes it clear locals must be informed of the activities of the mining company in their region. In other parts of the law (page 50), provision is made for locals to have mandatory access to the mine three times per year to inspect proceedings and talk with the company.

On page 30: The law states that all operating miners have one year to obtain ISO 9000 2001, ISO 14001 2000 and ISO 18000 international certifications. Those without the necessary certificates after the year will first be fined, then shut down. A smart move by the gov't, methinks; it means the mining company in question must be whiter than white by world standards.

On page 94: The gov't outlines the tender process that will be used in the future to sell concessions to any company wishing to explore in Ecuador. The days of free concessions are now officially over.

Of course, these are just a few points that have caught my eye, and a full read is highly recommended. However, the law as stands is very good news for Aurelian and the other companies exposed to Ecuador recently hit in the share price. I reiterate my strong buy rating on ARU.to without a moment's hesitation.

Despite the recent decision by locals to ban mining in the area, Canadian uranium miners are still pumping their Macusani plays to a less-informed world. Here's the PR from Macusani Yellowcake Inc (YEL.v), which includes the CEO's phrase"..This testing demonstrates that the concept of a low cost heap leach mine is realistic..."Realistic in his own fantasy world, perhaps.

Since scooping the hot Minera Andes gossip last Wednesday, the stock has been strong, moving from $1.35 to $1.57 like this:A quick 15% climb with metals bearish today; that's what i call being on the right side of a trade. Holding, and looking for plenty more to come.

It looks like the worst of the energy crisis is over for Chile, thanks to the unseasonal heavy rainfall of last week that replenished some of the hydro reservoirs in central and southern regions. Here's a Reuters note on the subject featuring energy minister Marcelo Tokman. Although Chile has been a bit lucky to escape a really bad crisis, due credit must go to minister Tokman for the way he has managed the issue in the last few weeks. He was always realistic about the situation, but never lapsed into hype of scare tactics or false hopes. If more politicians all over LatAm took a leaf out of his book and treated their electorate like adults, the region would be a better place. Kudos to you, Tokman.

Today, this new statue of Ernesto "El Che" Guevara is being paraded round the streets of Buenos Aires before it sets sail (literally, it's travelling by boat) for Guevara's city of birth, Rosario, where it'll find its permanent home. Of course his face is already everywhere in South America, from enormous stone busts in Venezuela to murals in Cuba to painted on the back end of buses in Bolivia, and all points in between. Seems like his home country has finally decided to get in on the act.

The artist, Andres Zerneri, made the statue from metal donated by around 15,000 people, and included around 75,000 keys in the melting pot. All this a is a far cry from just a few years ago, when this humble Otto found himself walking down Araoz St. in the centre of Buenos Aires and remembered it was the same street the Guevara's called home for many years. On visiting the house number where Che lived, there was nothing to commemorate him. Friends now say there is a big brass plaque there, too.

5/26/08

Today, the Peruvian gov't of Alan Garcia proclaimed that poverty levels had dropped from 44.5% in 2006 to 39.3% of the population in 2007. This implies that a quite incredible (i use the word in its fullest sense) 1.43 million people have escaped from poverty in the space of one year, despite a quickening rate of inflation.

As the eminent and now world famous economics professor Jurgen Schuldt of the Universidad Pacifico de Lima, Peru has recently returned from some well deserved downtime in the old continent, I can't wait to see what he does with this amazing example of statistical massage on his blog, especially bearing in mind that he has spoken at length on the subject already (and in English).

Here's a big fanfare-type note on Bloomberg today featuring two performing monkeys in Canada who have decided to announce the totally obvious about Candente Resources (DNT.to, CDOUF.pk). This is presumably because their bosses at the big Canadian brokerage houses have filled up enough at the cheap prices and have told their "everso everso independent and free-thinking" analysts to pump the stock to the little people (errr...that means you, dude).

And because sheep suddenly read nice things about DNT.to today and "discovered" the company, it pushed the stock up 11% on double average volume (which is pretty darned impressive on a day when Canada is open and the USA closed).

Here's what performing monkeydude number one said:"...People are getting excited about a resource update.... The price of shares may rise to $3 in a year...."

And here's performing monkeydude number two's contribution to society:"...one of the most deeply discounted copper deposits in South America......may be a target for a takeover......It's just so tremendously undervalued, and the market just overlooked it, at least before today...."

A map of the Macusani concessions in jeopardy. The green concessions are wholly owned by Solex Resources, the pink concessions are a JV between Solex and Frontier Pacific. Other colours are shown in the key.(click to enlarge)

A decision by Peruvian locals the town of Macusani in Puno is a serious blow for several junior mining companies, mostly Canadian. The list is quite long, and includes Vena Resources (VEM.to), Solex (SOX.v), Frontier Pacific (FRP.v), Bear Creek Mining (BCM.v), Strathmore (STM.v) amongst others.

The bad news? This week, the local population at Macusani has unanimously voted to stop all mining of uranium in the region, and will only allow exploration work to go ahead. The decision is based on the desire to protect the local environment, grazing land for livestock and also the prehistoric rock painting and petroglyphs that are found all over the region, and particularly in the concession areas close to the town of Macusani. This decision adds to the Peru national gov't decision last year to designate Macusani a protected area.

This news will be a particular blow for Solex (they have a lot of concessions there) and to Vena Resources because VEM.to recently published very promising assay results at its main Macusani concession that helped lift the stock from the doldrums on high volumes. This news may be the reason why Vena is down 7% today, but the volume is low.

Remember that environmental protests against proposed mines are by no means confined to Ecuador and Venezuela; the so called "miner friendly" lands of Peru etc are feeling the pressure, too. There are a whole bunch of environmental groups and societies that actively protect prehistoric sites in LatAm that are celebrating this decision today. Do not underestimate the power of locals in Peru; there is enough precedent to suggest that Macusani is now a no-go area for mining.

I mean WHAAAAAAAAAAAAAAAAT? Is this the most infantile gov't in the world? The debate on whether it's the worst gov't in LatAm is now al over...that's obvious now. We can now rank these idiots in the same league as Myanmar, Zimbabwe and ..................... (add your own favourites).

The agro boyz are now going to meet amongst themselves tomorrow to decide what to do. I'd expect the more militant factions to win the day, and road blocks on grain exports will be the order of the day. However, they'd be making a big mistake if they decide to block provisions to Buenos Aires and that is less likely.

This is going to end very badly. Klishtina is looking more and more like Isabelita every day.

UPDATE: Word is that after an emergency meeting of Kirchner inner circle members, including the King himself, Klishtina and company are about to announce a new plan for export taxes without consulting the agro representatives. Anything could happen.

5/25/08

The organisers of the agro rally in Rosario today claim an attendance of 300,000 people. The police put the number at around 200,000.Whatever; with either figure confirmed I'm fairly certain that it's the biggest single protest meeting against any Argentine government since the country returned to democratic rule in 1983 (but expect gov't sourced whispers to say there were less than 100k there)

In the speeches, the most notable takeaway was the unity of grassroots organisers with the directors that are currently negotiating with the Klishtina gov't.

The powerful leader of the argo masses, Alfredo De Angeli, took plenty of time to praise the negotiation team for their patience.This will have sent a strong message to the gov't that the hoped-for breakdown in resolve from some factions of the agro sector just isn't happening.

Meanwhile, at her rally in Salta, Klishtina didn't even mention the agro dispute. Gotta laugh, eh? If you want photos of that rally, find them on another blog. I'm sick to death of seeing her face already.

The next move is a supposed resumption of talks between the two sides tomorrow. The agro boyz have said they'll attend, but word on the street right now is that the gov't is in two minds whether to go to the table tomorrow. Just shows the utter stupidity in action at Kirchner&Co. I now fully expect the strike to resume Wednesday. Watch this space and short those bonds (and BMA).

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